((Date))
as modified on
August 28, 1998
((First Name)) ((Initial_Last_Name))
((Title))
Cygnus, Inc.
400 Penobscot Drive
Redwood City, CA 94063
Dear ((Salutation)):
Cygnus, Inc., a Delaware corporation (the "Company"), considers the
establishment and maintenance of a sound and vital executive management team to
be essential to protecting and enhancing the best interests of the Company and
its stockholders. In this connection, the Company recognizes that, as is the
case with many publicly held corporations, the possibility of a change in
control may arise and that such possibility, and the uncertainty and questions
which it may raise among management, may result in the departure or distraction
of management personnel to the detriment of the Company and its stockholders.
In view of the above, the Board of Directors of the Company (the
"Board") has determined that appropriate steps should be taken to reinforce and
encourage the continued attention and dedication of members of the Company's
management to their assigned duties without distraction in circumstances arising
from the possibility of a change in control of the Company. In particular, the
Board believes it important, should the Company or its stockholders receive a
proposal for transfer of control of the Company, that you be able to assess and
advise the Board whether such proposal would be in the best interests of the
Company and its stockholders and to take such other action regarding such
proposal as the Board might determine to be appropriate, without being
influenced by the uncertainties of your own situation.
In order to induce you to remain in the employ of the Company, this
letter agreement (the "Agreement"), which has been approved by the Board, sets
forth the severance benefits which the Company agrees will be provided to you in
the event your employment with the Company is terminated under the circumstances
described below. This Agreement includes, as if set forth in full herein, those
definitions set forth in Exhibit A hereto, which exhibit is specifically
incorporated herein by this reference. All such capitalized terms used and
defined herein, shall have the meanings ascribed to them in EXHIBIT A.
1. AGREEMENT TO PROVIDE SERVICES; RIGHT TO TERMINATE.
(i) Except as otherwise provided in paragraph 1(ii) below, the
Company or you may terminate your employment at any time, subject to the
Company's providing the benefits hereinafter specified in accordance with the
terms hereof.
(ii) In the event a tender offer or exchange offer is made by a
Person for more than 50% of the combined voting power of the Company's
outstanding equity securities, including convertible debt, ordinarily having the
right to vote at elections of directors ("Voting Securities"), or in the event
of any solicitation of proxies or written consents not approved by the Board,
you agree that such event will not lead you to leave the employ of the Company
(other than as a result of Disability or upon Retirement) and will render the
services contemplated in the recitals to this Agreement until such tender offer
or exchange offer has been abandoned or terminated or a change in control of the
Company has occurred.
2. TERM OF AGREEMENT. This Agreement shall commence on the date
hereof and shall continue in effect until December 31, 1998; provided, however,
that commencing on January 1, 1999 and each January 1 thereafter, the term of
this Agreement shall automatically be extended for one additional year unless at
least 90 days prior to such January 1st date, the Company or you shall have
given written notice that this Agreement shall not be extended; and provided,
further, that this Agreement shall continue in force and effect for a period of
twenty-seven (27) months beyond the term provided herein if a change in control
of the Company shall have occurred during such term. Notwithstanding anything
in this Section 2 in this Agreement to the contrary, this Agreement (and only
this Agreement) shall terminate if you or the Company terminates your employment
prior to a change in control of the Company, but in the case of a termination of
you by the Company without Cause or a termination by you for Good Reason or
death or Disability within five (5) months prior to the closing date of a change
in control, the specific benefits set forth in this Agreement shall be available
to you.
3. TERMINATION REGARDING CHANGE IN CONTROL. If any of the events
described in EXHIBIT A hereto constituting a change in control of the Company
shall have occurred, you shall be entitled to the benefits provided in
(1) paragraphs (ii) and (iii) of Section 4 hereof and (2) Section 5 hereof, upon
the termination of your employment within five (5) months prior to the closing
date of a change in control, on the change in control date or within twenty-four
(24) months after such event, unless such termination is (a) because of your
Retirement, (b) by the Company for Cause or (c) by you other than for Good
Reason (other than death or Disability).
Any purported termination by the Company or by you on or following a
change in control shall be communicated by written Notice of Termination to the
other party hereto. For purposes of this Agreement, a "Notice of Termination"
shall mean a written notice which shall indicate the specific termination
provision in this Agreement relied upon.
4. COMPENSATION AND OTHER AGREEMENTS.
(i) If your employment shall be terminated for Cause prior to,
on or following a change in control of the Company, the Company shall pay you
your salary through the Date of Termination at the rate in effect immediately
prior to the time a Notice of Termination is given, plus any benefits or awards
(including both the cash and stock components) which pursuant to the terms of
any Plans have been earned or become payable, but which have not yet been paid
to you. Thereupon, the Company shall have no further obligations to you under
this Agreement.
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(ii) Subject to Sections 6 and 10 hereof, if, within five (5)
months prior to the closing date of a change in control, on the date on which,
or within twenty-four (24) months after, a change in control of the Company
shall have occurred, your employment by the Company shall be terminated (a) by
the Company other than for Cause or (b) by you for any Good Reason or death or
Disability, then you shall be entitled, without regard to any contrary
provisions of any Plan, to the benefits as provided below:
(A) the Company shall pay your salary through the Date of
Termination at the rate and times in effect immediately prior to the time a
Notice of Termination is given, plus any benefits or awards (including both
the cash and stock components) which pursuant to the terms of any Plans
have been earned or become payable, but which have not yet been paid to you
(including amounts which previously had been deferred at your request);
(B) as severance pay, the Company shall pay to you no later
than the fifth day following the Date of Termination cash equal to one
times (1x) your annual base salary in effect immediately prior to the
Notice of Termination, plus one times (1x) the amount of any cash bonus
awards made to you with respect to the Company's full fiscal year
immediately preceding the Notice of Termination;
(C) with respect to any stock options, restricted stock,
share rights or other incentive equity compensation awards made to you by
the Company which (i) were originally denominated in Common Stock of the
Company, and (ii) are subject to various restrictions and limitations
(based solely upon your period of continuous employment by the Company or a
Successor (as defined in Section 8 hereof)), such equity awards shall have
the features set forth in Section 5 of this Agreement and the underlying
equity agreements; and
(D) if so requested by you, the Company shall pay for
reasonable outplacement services engaged by you in seeking new regular
full-time employment, which services will include the provision to you of
appropriate office, telephone, computer and secretarial services until the
earlier of (x) six (6) months from the Date of Termination or (y) such time
as you obtain regular full-time employment.
(iii) within five (5) months prior to the closing date of a
change in control, on or within twenty-four (24) months following a change in
control of the Company, unless you are terminated for Cause or Retirement or you
terminate your employment other than for any Good Reason, death or Disability,
the Company shall maintain in full force and effect, for the continued benefit
of you and your dependents for a period terminating on the earliest of (a) one
year after the Date of Termination, (b) the commencement date of equivalent
benefits from a new employer or (c) your normal retirement date under the terms
of the Retirement Policy, all insured and self-insured employee welfare benefit
Plans in which you and your dependents were entitled to participate immediately
prior to the Date of Termination, provided that your continued participation is
possible under the general terms and provisions of such Plans and you continue
to pay an amount equal to your regular contribution under such plans for such
participation (calculated at the rate of the contribution amounts in effect
immediately preceding the Date of Termination). In the event that your
participation in any such Plan is barred, the
3
Company, at its sole cost and expense, shall arrange to have issued for the
benefit of you and your dependents individual policies of insurance providing
benefits substantially similar (on an after-tax basis) to those which you
otherwise would have been entitled to receive under such Plans pursuant to this
paragraph (iv) or, if such insurance is not available at a reasonable cost to
the Company, the Company shall otherwise provide you and your dependents
equivalent benefits (on an after-tax basis). You shall not be required to pay
any premiums or other charges in an amount greater than that which you would
have paid in order to participate in such Plans at the rate in effect
immediately preceding the Date of Termination.
5. STOCK OPTION DOCUMENTATION. Effective as of August 28,
1998, the Board of Directors and Compensation Committee have agreed to amend
your previously granted and any future Common Stock purchase options granted
prior to the closing date of a change in control to provide in part that,
notwithstanding Section 4 to the contrary, upon a change in control, all of your
unvested stock options shall immediately vest in full and become exercisable for
all the option shares as fully-vested shares on the closing date of the change
in control (and any outstanding repurchase rights of the Company on the Common
Stock purchased or purchasable under your options shall lapse in their entirety
at that time and those shares shall immediately vest), and your options (to the
extent assumed or otherwise continuing in effect after the change in control)
shall remain so exercisable as fully vested shares until twelve months after the
Date of Termination or the expiration date of the option term, whichever occurs
first.
Each new Common Stock purchase option granted to you by the Company on
and after the date of this Agreement but prior to the earliest of the expiration
or termination date of this Agreement or the closing date of the change in
control shall include these same vesting acceleration and exercise provisions.
Any options outstanding at the time this Agreement expires or terminates shall
continue to be governed by the vesting and post-employment exercise provisions
of this Section 5.
6. RESTRICTIVE COVENANTS. Any salary and bonus payments and
continued benefit coverage to which you become entitled under subparagraphs (ii)
or (iii) of Section 4 shall immediately cease should you at any time during the
applicable salary and bonus or benefit coverage continuation period:
(i) directly solicit any individual to leave the Company's
employ for any reason, or
(ii) induce or attempt to induce any customer, supplier,
distributor, licensor, licensee or other business relation of the Company to
cease doing business with the Company.
You acknowledge that monetary damages may not be sufficient to
compensate the Company for any economic loss which may be incurred by reason of
your breach of the foregoing restrictive covenants. Accordingly, in the event
of any such breach, the Company will, in addition to the cessation of the
severance benefits provided you under Section 4 of this Agreement and any
remedies available to the Company at law, be entitled to obtain equitable relief
in the form of an injunction precluding you from continuing to engage in such
breach.
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7. PARACHUTE PAYMENTS AND EXCISE TAX.
(i) For purposes of applying Sections 280(G) and 4999 of the
Internal Revenue Code of 1986, as amended from time to time (the "Code") and the
Treasury Regulations thereunder and any applicable state income tax laws to the
benefits which become payable to you under Sections 4 and 5 of this Agreement,
the following definitions shall be in effect:
AVERAGE COMPENSATION means the average of your W-2 wages
from the Company for the five (5) calendar years (or such
fewer number of calendar years of employment with the
Company) completed immediately prior to the calendar year in
which the change in control is effected. Any W-2 wages for
a partial year of employment will be annualized, in
accordance with the frequency which such wages are paid
during such partial year, before inclusion in your Average
Compensation.
If any of your compensation from the Company during such
five (5)-year or shorter period was not included in your W-2
wages for U.S. income tax purposes, either because you were
not a U.S. citizen or resident or because such compensation
was excludible from income as foreign earned income under
Code Section 911, then such compensation will nevertheless
be included in your Average Compensation to the same extent
as if it were part of your W-2 wages.
OPTION PARACHUTE PAYMENT means, with respect to the
accelerated vesting of any of your options or option shares
pursuant to this Agreement or otherwise, the portion of that
vesting acceleration deemed to be a parachute payment under
Code Section 280G and the Treasury Regulations issued
thereunder. The portion of such acceleration which is
categorized as an Option Parachute Payment will be
calculated in accordance with the valuation provisions
established under Code Section 280G and the applicable
Treasury Regulations and will include an appropriate dollar
adjustment to reflect the lapse of your obligation to remain
in the Company's employ as a condition to the vesting of the
accelerated installment. In no event, however, will the
Option Parachute Payment attributable to any accelerated
option (or accelerated installment) exceed the spread (the
excess of the fair market value of the accelerated option
shares over the option exercise price payable for those
shares) existing at the time of acceleration.
PARACHUTE PAYMENT means any payment or benefit provided you
under this Agreement (other than the Option Parachute
Payment) which is deemed to constitute a parachute payment
within the
5
meaning of Code Section 280G(b)(2) and the Treasury
Regulations issued thereunder.
PRESENT VALUE means the value, determined as of the date of
the change in control, of any payment in the nature of
compensation to which you become entitled in connection with
the change in control (the Option Parachute Payment
attributable to the accelerated vesting of your options or
option shares) or the subsequent termination of your
employment, including (without limitation) the Option
Parachute Payment attributable to the accelerated vesting of
any of your remaining options or option shares and any
additional benefits to which you become entitled under this
Agreement (the salary and bonus and outplacement services
continuation payments under Section 4(ii) and the continued
benefit coverage under Section 4(iii)). The Present Value of
each such payment shall be determined in accordance with the
provisions of Code Section 280G(d)(4), utilizing a discount
rate equal to one hundred twenty percent (120%) of the
applicable Federal rate in effect at the time of such
determination, compounded semi-annually to the effective
date of the change in control.
(ii) In the event there is any disagreement between you and the
Company as to whether one or more payments to which you become entitled in
connection with either the change in control or your subsequent termination of
employment constitute Parachute Payments or Option Parachute Payments or as to
the determination of the Present Value thereof, such dispute will be resolved as
follows:
(A) In the event temporary, proposed or final Treasury
Regulations in effect at the time under Code Section 280G (or applicable
judicial decisions) specifically address the status of any such payment or
the method of valuation therefor, the characterization afforded to such
payment by the Regulations (or such decisions) will, together with the
applicable valuation methodology, be controlling.
(B) In the event Treasury Regulations (or applicable
judicial decisions) do not address the status of any payment in dispute,
the matter will be submitted for resolution to an independent auditor
mutually acceptable to the Company and you ("Independent Auditors"). The
resolution reached by the Independent Auditors will be final and
controlling. All expenses incurred in connection with the retention of the
Independent Auditors to resolve the dispute shall be shared equally by you
and the Company.
(C) In the event Treasury Regulations (or applicable
judicial decisions) do not address the appropriate valuation methodology
for any payment in dispute, the Present Value thereof will, at the
Independent Auditor's election, be determined through an independent
third-party appraisal, and the expenses incurred in obtaining such
appraisal shall be shared equally by you and the Company.
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(iii) In the case(s) in which Section 7(ii) of this Agreement
applies, no salary or bonus or outplacement services reimbursement continuation
payments will be made to you under this Agreement and none of your options shall
vest and become exercisable on an accelerated basis (and none of your unvested
shares shall vest on an accelerated basis) under this Agreement or otherwise,
until the Present Value of the Option Parachute Payment attributable to the
accelerated vesting of those options or option shares has been determined and
the status of any payments in dispute under Section 7(iii) has been resolved in
accordance therewith. The post-termination exercise period for any options
which cannot be exercised for the accelerated shares by reason of the foregoing
limitation shall automatically be stayed and shall not be deemed to expire
during any period the option remains so unexercisable.
(iv) Should one or more of the benefits which become payable to
you under Sections 4 and 5 of this Agreement be deemed to constitute an excess
parachute payment under Code Section 280(G) or any applicable state income tax
laws, the Company will provide you with a full tax gross-up with respect to your
excise tax liability under Code Section 4999 and any such applicable state
income tax laws. The amount of such tax gross-up shall be determined pursuant
to the following formula:
X = Y DIVIDED BY [1 - (A + B + C)], where
X is the total dollar payment (the "Tax Gross-Up") required
to be paid by the Company on your behalf under this
Agreement,
Y is the total excise tax (the "Excise Tax") you incur
pursuant to Code Section 4999 (or any successor provision)
and any such applicable state income tax laws with respect
to the excess parachute payment attributable to one or more
of the benefits provided you under Sections 4 and 5 of this
Agreement,
A is the combined Excise Tax rate in effect under Code
Section 4999 and any such applicable state income tax laws
for such excess parachute payment,
B is the highest combined marginal federal income and
applicable state income tax rate in effect for you, after
taking into account the deductibility of state income taxes
against federal income taxes to the extent allowable, for
the calendar year in which the Tax Gross-Up is paid, and
C is the applicable Hospital Insurance (Medicare) Tax Rate
in effect for you for the calendar year in which the Tax
Gross-Up is paid.
INITIAL PAYMENT. Within ninety (90) days after the determination
is made by the Independent Auditors or by the Internal Revenue Service that you
have received a
7
parachute payment for which you are liable for an Excise Tax, you shall submit
that determination to the Company, and the Company shall calculate the Tax
Gross-Up to which you are entitled under this Section 7(iv) by reason of the
Excise Tax attributable to that payment. The Company shall pay such Tax
Gross-Up to you (net of all applicable withholding taxes, including any taxes
required to be withheld under Code Section 4999) within ten (10) business days
after your submission of the parachute payment determination.
FINAL DETERMINATION. In the event that your actual Excise Tax
liability is determined by a Final Determination to be greater than the Excise
Tax liability taken into account for purposes of the Tax-Gross-Up paid to you
pursuant to this Section 7(iv), then within ninety (90) days following the Final
Determination, you shall submit that Final Determination to the Company, and the
Company shall calculate the additional Tax Gross-Up to which you are entitled on
the basis of the Final Determination. Within ten (10) business days after
receipt of such Final Determination, the Company shall pay you the additional
Tax Gross-Up attributable to that excess Excise Tax liability.
REFUND. In the event that your actual Excise Tax liability is
determined by a Final Determination to be less than the Excise Tax liability
taken into account for purposes of the Tax Gross-Up paid to you pursuant to this
Section 7(iv), then you shall refund to the Company, promptly upon receipt, that
portion of any federal or state tax refund attributable to the Excise Tax
overpayment.
DEFINITION. For purposes of this Section 7(iv), a Final
Determination means an audit adjustment by the Internal Revenue Service agreed
to by you or your estate, with the consent of the Company (which shall not be
unreasonably withheld), or an adjustment sustained by a court of competent
jurisdiction in a decision with which you and the Company concur or with respect
to which the period within which an appeal may be filed has lapsed without a
notice of appeal being filed.
8. SUCCESSORS; BINDING AGREEMENT.
(i) The Company will seek to have any Successor, by agreement in
form and substance satisfactory to you, assent to the fulfillment by the Company
of its obligations under this Agreement. Failure of the Company to obtain such
assent at least three business days prior to the time a Person becomes a
Successor (or where the Company does not have at least three business days'
advance notice that a Person may become a Successor, within one business day
after having notice that such Person may become or has become a Successor) shall
constitute Good Reason for termination by you of your employment and, if a
change in control of the Company has occurred, shall entitle you immediately to
the benefits provided in paragraphs (ii) and (iii) of Section 4 and Section 5
hereof upon delivery by you of a Notice of Termination. For purposes of this
Agreement, "Successor" shall mean any Person that succeeds to, or has the
practical ability to control (either immediately or with the passage of time),
the Company's business directly, by merger or consolidation, or indirectly, by
purchase of the Company's Voting Securities, all or substantially all of its
assets or otherwise.
(ii) This Agreement shall inure to the benefit of and be
enforceable by your personal or legal representatives, executors,
administrators, successors, heirs, distributees,
8
devisees and legatees. If you should die while any amount would still be
payable to you hereunder if you had continued to live, all such amounts, unless
otherwise provided herein, shall be paid in accordance with the terms of this
Agreement to your devisee, legatee or other designee or, if there be no such
designee, to your estate.
9. FEES AND EXPENSES. The Company shall pay all reasonable legal
fees and related expenses incurred by you in connection with the Agreement
following a change in control of the Company, including, without limitation,
(a) all such fees and expenses, if any, incurred in contesting or disputing any
such termination or (b) your seeking to obtain or enforce any right or benefit
provided by this Agreement.
10. TAXES. All payments to be made to you under this Agreement will
be subject to required withholding of federal, state and local income and
employment taxes.
11. SURVIVAL. The respective obligations of, and benefits afforded
to, the Company and you as provided in Sections 3, 4, 5, 6, 7, 8, 9, 10, 11, 12,
14, 16 and 17 of this Agreement shall survive termination of this Agreement in
accordance with their respective terms. The benefits and obligations available
under Sections 3, 5, 8(ii), 9, 11, 12, 14 and 17 of this Agreement shall survive
expiration and/or non-renewal of this Agreement in accordance with their
respective terms.
12. EMPLOYEE'S COMMITMENT. You agree that during and subsequent to
your period of employment with the Company, you will not at any time communicate
or disclose to any unauthorized person, without the written consent of the
Company, the existence, terms or conditions of this Agreement or any proprietary
or other confidential information concerning the Company or any subsidiary
pursuant to the terms set forth in the proprietary information agreement
executed by you and the Company.
13. NOTICE. Notices and all other communications provided for in the
Agreement shall be in writing and shall be deemed to have been duly given when
delivered or mailed by United States registered mail, return receipt requested,
postage prepaid and addressed, in the case of the Company, to Cygnus, Inc., 400
Penobscot Drive, Redwood City, California 94063, or, in the case of the
undersigned employee, to the address set forth below such person's signature,
provided that all notices to the Company shall be directed to the attention of
the Chairman of the Board or President and Chief Executive Officer of the
Company, with a copy to the Secretary of the Company, or to such other address
as either party may have furnished to the other in writing in accordance
herewith, except that notice of change of address shall be effective only upon
receipt.
14. MISCELLANEOUS; CHOICE OF LAW AND VENUE. No provision of this
Agreement may be modified, waived or discharged unless such modification, waiver
or discharge is agreed to in a writing signed by you and the Chairman of the
Board of Directors of the Company or the Company's President and Chief Executive
Officer (provided you are not one of such persons). No waiver by either party
hereto at any time of any breach by the other party hereto of, or of compliance
with, any condition or provision of this Agreement to be performed by such other
party shall be deemed a waiver of similar or dissimilar provisions or conditions
at the same or at any prior or subsequent time. No agreements or
representations, oral or otherwise,
9
express or implied, with respect to the subject matter hereof have been made by
either party which are not expressly set forth in this Agreement. The validity,
interpretation, construction and performance of this Agreement shall be governed
by the laws of the State of California. In the event of any dispute relating to
any provision of this Agreement, other than indemnification matters set forth in
Section 17 which shall be governed by the laws of the State of Delaware, the
parties shall use all reasonable efforts to settle the issues in good faith
negotiations. If the dispute cannot be settled amicably in this manner, all
actions, claims or legal proceedings in any way pertaining to this Agreement or
such transactions shall be commenced and maintained only in the courts of the
State of California or of the United States of America located within the State
of California, and in no other court or tribunal whatsoever, other than
indemnification matters set forth in Section 17 which shall be governed by the
laws of the State of Delaware, and the parties hereto each agree to irrevocably
submit themselves to the respective exclusive jurisdictions of such California
courts.
15. VALIDITY. The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, which shall remain in full force and effect.
16. RELATED AGREEMENTS. To the extent that any provision of any
other agreement between the Company and you shall limit, qualify or be
inconsistent with any provision of this Agreement, then for purposes of this
Agreement, while the same shall remain in force, the provision of this Agreement
shall control and such provision of such other agreement shall be deemed to have
been superseded, and to be of no force or effect, as if such other agreement had
been formally amended to the extent necessary to accomplish such purpose. Upon
a Notice of Termination of you by the Company without Cause or a termination by
you for Good Reason or Disability or death within five (5) months prior to a
change in control, on or within twenty-four (24) months after a change in
control, notwithstanding the applicability of the agreement originally entered
into by you on August 28, 1998 with respect to severance and other matters
unrelated to a change in control (the "1998 Agreement"), the 1998 Agreement
shall be superseded in its entirety by the terms of this Agreement and the 1998
Agreement shall have no force or effect (notwithstanding anything in the 1998
Agreement to the contrary). The terms governing your stock option and stock
issuance agreements, as amended, shall be deemed incorporated by reference
herein as if specifically set forth in their entirety herein.
17. INDEMNIFICATION. Notwithstanding anything contained herein to
the contrary, the indemnification provisions for officers, agents and directors
under the Company's certificate of incorporation, indemnification agreement,
Bylaws and insurance policies will (to the maximum extent permitted by law and
contract) be extended to you with respect to any and all matters, events or
transactions occurring or effected during your employment with the Company or
Successor.
18. INDEPENDENT LEGAL COUNSEL. By executing this Agreement, you
acknowledge that (i) this Agreement has been prepared by Brobeck, Phleger &
Harrison LLP ("Brobeck") acting in its capacity as legal counsel to the Company
and (ii) you have had an opportunity to seek advice from your own legal counsel
with respect to the matters contained herein and such individual counsel is not
a current attorney at Brobeck.
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19. COUNTERPARTS. This Agreement may be executed in several
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
If this Agreement correctly sets forth our agreement on the subject
matter hereof, kindly sign and return to the Company the enclosed copy of this
Agreement which will then constitute our agreement on this subject.
Very truly yours,
CYGNUS, INC.
By
-----------------------------------
((Signee))
((Signee_Title))
Modification Agreed to this 28th day of
August, 1998
- ----------------------------------------
((First_Name)) ((Initial_Last_Name))
Address:
400 Penobscot Drive
Redwood City, CA 94063
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EXHIBIT A
TERMS, PROVISIONS AND DEFINITIONS
APPLICABLE TO CYGNUS, INC.
CHANGE IN CONTROL AGREEMENT
I. DEFINITIONS.
For purposes of the Agreement to which this EXHIBIT A is attached, the
terms set forth below shall be defined as follows:
CAUSE. Termination by the Company of your employment for "Cause" shall
mean termination upon (a) the willful and continued failure by you to perform
substantially your duties with the Company (other than any such failure
resulting from your incapacity due to physical or mental illness) after a demand
for substantial performance is delivered to you by the Chairman of the Board or
President and Chief Executive Officer of the Company or its Successor which
specifically identifies the manner in which such executive believes that you
have not substantially performed your duties, or (b) the willful engaging by you
in illegal conduct which is materially and demonstrably injurious to the
Company. For purposes of this definition, no act, or failure to act, on your
part shall be considered "willful" unless done, or omitted to be done, by you in
bad faith and without reasonable belief that your action or omission was in, or
not opposed to, the best interests of the Company. Any act, or failure to act,
based upon authority given pursuant to a resolution duly adopted by the Board or
based upon the advice of counsel for the Company shall be conclusively presumed
to be done, or omitted to be done, by you in good faith and in the best
interests of the Company. It is also expressly understood that your attention
to matters not directly related to the business of the Company shall not provide
a basis for termination for Cause so long as the Board has approved your
engagement in such activities. Notwithstanding the foregoing, you shall not be
deemed to have been terminated for Cause unless and until there shall have been
delivered to you a copy of a resolution duly adopted by the affirmative vote of
not less than three quarters of the entire membership of the Board at a meeting
of the Board called and held for the purpose (after reasonable notice to you and
an opportunity for you, together with your counsel, to be heard before the
Board), finding that in the good faith opinion of the Board you were guilty of
the conduct set forth above in (a) or (b) of this definition and specifying the
particulars thereof in detail.
CHANGE IN CONTROL. A "change in control" of the Company shall mean a
change in control of a nature that would be required to be reported (assuming
such event has not been "previously reported") in response to Item 1(a) of the
Current Report on Form 8-K, as in effect on the date hereof, pursuant to
Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"); provided that, without limitation, such a change in control
shall be deemed to have occurred at such time as (a) any Person is or becomes
the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act),
directly or indirectly, of 50% or more of the combined voting power of the
Company's Voting Securities; or (b) individuals who constitute the Board on the
modified date hereof (the "Incumbent Board") cease for any reason to constitute
at least a majority thereof, provided that any person becoming a director
subsequent to the date hereof whose election, or nomination for election by the
Company's stockholders, was approved by a
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vote of at least three quarters of the directors comprising the Incumbent Board
(either by a specific vote or by approval of the proxy statement of the Company
in which such person is named as a nominee for director, without objection to
such nomination) shall be, for purposes of this clause (b), considered as though
such person were a member of the Incumbent Board. Notwithstanding anything in
the foregoing to the contrary, no change in control shall be deemed to have
occurred by virtue of any transaction which results in you, or a group of
Persons which includes you, acquiring, directly or indirectly, 30% or more of
the combined voting power of the Company's Voting Securities.
DATE OF TERMINATION. "Date of Termination" shall mean (a) if your
employment is to be terminated for Disability, thirty (30) days after Notice of
Termination is given (provided that you shall not have returned to the
performance of your duties on a full-time basis during such thirty (30) day
period), (b) if your employment is to be terminated by the Company for Cause,
the date specified in the Notice of Termination, or (c) if your employment is to
be terminated by you for Good Reason or by the Company for any reason other than
Cause, the date specified in the Notice of Termination, which in no event shall
be a date earlier than ninety (90) days after the date on which a Notice of
Termination is given, unless an earlier date has been expressly agreed to by you
in writing either in advance of, or after, receiving such Notice of Termination.
In the case of termination by the Company of your employment for Cause, if you
have not previously expressly agreed in writing to the termination, then within
thirty (30) days after receipt by you of the Notice of Termination with respect
thereto, you may notify the Company that a dispute exists concerning the
termination, in which event the Date of Termination shall be the date set either
by mutual written agreement of the parties or through a judicial determination.
During the pendency of any such dispute, the Company will continue to pay you
your full compensation in effect immediately prior to the time the Notice of
Termination is given and until the dispute is resolved in accordance with the
terms hereof.
DISABILITY. Termination of your employment based on "Disability" shall
mean termination because of your absence from your duties with the Company on a
full time basis for one hundred eighty (180) consecutive days as a result of
your incapacity due to physical or mental illness, unless within thirty (30)
days after Notice of Termination is given to you following such absence, you
shall have returned to the full time performance of your duties.
GOOD REASON. Termination by you of your employment for "Good Reason" shall
mean termination based on:
(A) an adverse change in your status or position(s) as an officer of
the Company as in effect immediately prior to the change in control, including,
without limitation, any adverse change in your status or position as a result of
a material diminution in your duties or responsibilities (other than, if
applicable, any such change directly attributable to the fact that the Company
is no longer publicly owned) or the assignment to you of any duties or
responsibilities which, in your reasonable judgment, are inconsistent with such
status or position(s), or any removal of you from or any failure to reappoint or
reelect you to such position(s) (except in connection with the termination of
your employment for Cause or Retirement or by you other than for Good Reason);
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(B) a reduction by the Company in your base salary as in effect
immediately prior to the change in control;
(C) the failure by the Company to continue in effect any Plan in
which you are participating at the time of the change in control of the Company
(or Plans providing you with at least substantially similar benefits) other than
as a result of the normal expiration of any such Plan in accordance with its
terms as in effect at the time of the change in control, or the taking of any
action, or the failure to act, by the Company which would adversely affect your
continued participation in any of such Plans on at least as favorable a basis to
you as is the case on the date of the change in control or which would
materially reduce your benefits in the future under any of such Plans or deprive
you of any material benefit enjoyed by you at the time of the change in control;
(D) the failure by the Company to provide and credit you with the
number of paid vacation days to which you are then entitled in accordance with
the Company's normal vacation policy as in effect immediately prior to the
change in control;
(E) the Company's requiring you to be based more than 50 miles from
where your office is located immediately prior to the change in control except
for required travel on the Company's business to an extent substantially
consistent with the business travel obligations which you undertook on behalf of
the Company prior to the change in control;
(F) the failure by the Company to obtain from any Successor the
assent to this Agreement as contemplated by the terms hereof;
(G) any purported termination by the Company of your employment which
is not effected pursuant to a Notice of Termination satisfying the requirements
of this Agreement; and for purposes of this Agreement, no such purported
termination shall be effective; or
(H) any refusal by the Company to continue to allow you to attend to
matters or engage in activities not directly related to the business of the
Company which, prior to the change in control, you were permitted by the Board
to attend to or engage in.
PERSON. "Person" shall mean and include any individual, corporation,
partnership, group, association or other "person," as such term is used in
Section 14(d) of the Exchange Act, other than the Company, a wholly-owned
subsidiary of the Company or any employee benefit plan(s) sponsored by the
Company.
PLAN. The term "Plan" shall mean any compensation plan such as an
incentive, stock option or restricted stock plan or any pension or profit
sharing plan, other than the Agreement.
RETIREMENT. Termination by you or by the Company of your employment based
on "Retirement" shall mean termination on or after your normal retirement date
under the terms of the Company's retirement policy (or any successor or
substitute policy or policies of the Company put into effect prior to a change
in control) (the "Retirement Policy").
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